What Is a Share?

Imagine a large company worth a huge amount. Very few people could buy the whole company. By dividing ownership into millions of shares, the company lets many people own a small part each. Every share carries the same rights as every other share of the same type.

Companies sell shares to raise money for growth: new factories, products, technology or expansion. Unlike a loan, this money does not have to be repaid. In return, the new shareholders become part-owners and share in future profits.

Our page on IPO versus mutual fund explains how companies first sell shares to the public.

After a company lists, its shares are bought and sold on stock exchanges like the NSE and BSE. Investors trade with each other through brokers, and the exchange matches buyers and sellers.

Our pages on NSE versus BSE and how the stock market works explain this.

A share price is simply what buyers are willing to pay at that moment. It moves with company results, future expectations, interest rates, economic news and investor mood. Over the long run, prices tend to follow how much the company earns.

Our post on why the stock market falls explains common reasons.

Price growth: if the company grows and its share price rises, you can sell for more than you paid.

Dividends: companies may pay part of their profits to shareholders.

Our page on what a dividend is explains payouts.

Share prices can fall sharply, sometimes for long periods. A company can struggle, cut dividends or even fail. Shareholders are paid last if a company closes. That is why shares suit long-term money and why spreading across many companies matters.

Our page on risk and volatility explains this.

Every share has a face value, a fixed accounting amount set by the company, and a market price, which is what it trades at. The two are usually very different. The market price is what matters for investors.

Most shares traded are equity shares, which carry voting rights and a share of profits. Some companies also issue preference shares, which usually pay fixed dividends and have priority over equity shareholders but limited voting rights.

Our page on what equity means explains ownership further.

• Vote on certain company decisions.
• Receive dividends when declared.
• Get annual reports and attend meetings.
• Participate in bonus issues, splits and rights issues.

Our page on bonus shares and splits explains corporate actions.

To buy shares directly, you need a demat account to hold them and a trading account to place orders, usually opened with a broker, along with PAN and KYC.

Our page on demat versus trading accounts explains the difference.

Shares of large, established companies tend to be steadier than those of small companies, which can grow faster but swing more. Market capitalisation, the total value of all shares, is used to classify companies by size.

Our page on market capitalisation explains this.

Investors look at a company profits, growth, debt and management, and at valuation measures like earnings per share and the price-to-earnings ratio. Judging shares well takes time and skill.

Our page on earnings per share explains one key measure.

An equity mutual fund owns shares of many companies at once, chosen and monitored by a professional fund manager. You get diversification with small amounts, without needing to research each company or open a demat account.

Our page on mutual funds versus stocks compares the two routes.

Direct shares give full control but need time, knowledge and discipline. Funds offer diversification and professional management but charge an expense ratio. Many families use funds for most of their equity money.

Our page on stock SIP versus mutual fund SIP explains another comparison.

Social media and messaging groups are full of strangers telling you what to buy. Buying shares because someone said so, without understanding the company, often ends badly. If you buy shares directly, do your own research and diversify.

Our page on behavioural biases explains why such advice is tempting.

Shares and equity funds suit goals at least seven years away, so there is time to recover from falls. Money needed sooner should be in steadier options.

Our page on long-term investing explains why time matters.

Shares of companies listed on a stock exchange can be bought and sold easily at market prices. Shares of unlisted companies are harder to buy and sell, have less public information and can be very risky. Be cautious of offers to buy "pre-IPO" or unlisted shares from unknown sellers.

A share priced high is not necessarily expensive, and a share priced low is not necessarily cheap. What matters is the price compared with the company profits and prospects. This is why investors look at measures like earnings per share and valuation ratios rather than the price alone.

Whether you hold shares directly or through funds, keep a simple list of holdings, account numbers and nominees, and tell a family member where to find it.

• A share is a piece of company ownership.
• Prices move with performance and mood.
• Earn through price growth and dividends.
• Funds let you own many shares easily.

We are distributors rather than investment advisers and we recommend no schemes. If you want help starting with equity funds, get in touch.